First Take

Campbell Soup’s struggles deepen

Commentary: Caught off-guard in a microwave marketplace

SAN FRANCISCO (MarketWatch) — It’s another sign of changing times. And one management can’t seem to read.

Campbell Soup Co.
CPB, +1.42%
released its latest earnings report Friday. It was disappointing, to say the least. The only investors likely to take heart from the results were those either shorting the stock or looking to buy the dips.

And the stock certainly dipped, falling 5% after Campbell said its fiscal second-quarter earnings fell 8% from a year ago. Adding insult to injury, the company chopped its outlook for the rest of the year and warned profits are likely to slip another 1% to 3% for the full year. Read about Campbell's latest quarter.

So how is it that a soup company can’t capitalize on the biggest economic slump since the 1930s, when soup assumed near legendary status as the sustenance of a down-and-out nation? Are Campbell’s latest shortcomings a sign the Great Recession is over?

Costly lattes, cheaper haircuts

(2:44)

WSJ's Jon Hilsenrath reports on an inflation tug-of-war in the U.S. Consumers are paying more for goods, but less for services.

The recovering economy could be part of the problem. More relevant, however, is the relentless rise in food prices over the past year, which couldn’t have come at a worse time for a company hell-bent on defending market share by heavily promoting its brands. Higher production costs and steeper discounts are close companions on the road to smaller profits.

But Campbell’s stalemate has less to do with macro-economics than with falling out of grace in a fast-changing marketplace.

Let’s face it. Canned soup is not comfort food to a generation with no recollection of life before the microwave oven.

Campbell’s can tinker with their recipes all they want, but at the end of the day the company still rests heavily on a food, packaging and marketing model that belongs to an older America. Campbell’s soup sustained the nation in the 1930s. Lassie pitched it on television in the 1950s. Andy Warhol made it iconic in the 1960s.

Then came Top Ramen in the 1970s, and Campbell Soup has been moving farther back on the pantry shelf ever since, despite brand diversification and ads inviting us “discover the new Campbell’s”. The problem is, the business still rests too heavily on condensed soup.

As for the millions of people who still genuinely like soup, they’re taking their money elsewhere. Whole Foods Markets Inc.
WFMI
, which charges a king’s ransom for its groceries, is making money hand-over-fist these days, so the economy can’t be blamed for Campbell’s struggles. No, the main problem is that Campbell’s is wed to its own sense of history, and it’s getting left behind in the process.

Meanwhile, according to FactSet Research, short positions on Campbell Soup now account for nearly 6% of its outstanding stock. And that’s not comforting.

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